EU web tax plans go beyond French 'quick fix' turnover levy

BRUSSELS (Reuters) - The European Union’s plans to raise more tax from major internet companies such as Google and Amazon are more ambitious than the levy on turnover proposed by France, the EU presidency said, warning of the possible drawbacks of “quick fix” solutions.

Estonia, which holds the rotating EU presidency, is proposing an overall reform of corporate taxation that would tax internet companies in the EU states where they make profits, regardless of their tax residence.

France has proposed a tax on online giants’ turnover rather than on their profits. Germany, Italy and Spain have backed Paris on this idea.

Both proposals are aimed at increasing the tax bills of web firms, preventing them from declaring their revenues only in EU states with low tax rates, like Ireland or Luxembourg.

The issue will be discussed by EU finance ministers in a meeting in Tallinn, the Estonian capital, on Saturday.

Although the aims coincide, the two proposals may clash.

A tax on turnover could hit loss-making companies, which usually are exempted from taxes, and may reduce the appetite for investment, the Estonian undersecretary for tax, Dmitri Jegorov, told Reuters.

He said such a tax would be “a quick fix”, rather than a structural solution to the problem of low taxation of the digital economy.

“Our level of ambition is much higher,” he said. He added that the precondition for long-term fairer taxation was to affirm the principle of “virtual permanent establishment,” whereby digital companies pay taxes in countries where they have a “significant digital presence”.

He did not give more details about the Estonian plans as political and technical talks one them have yet to be held.

He also stressed that the French and the Estonian plans were not incompatible and could be seen as different steps of the same strategy.

Despite divergences, pressure is growing to reach a compromise by the end of the year. Smaller EU states, usually reluctant to accept tax reforms, will need to be convinced. They hold a veto power on all tax legislation.

“We believe an equalization tax could be an important step forward as part of a wider approach to deal with low taxation of the economy,” a spokesperson for France’s ministry of the economy and finance said.

“That’s why this initiative should be seen as complementary to other initiatives being discussed at an EU and global level.”

The European Commission, the EU executive body in charge of making legislative proposals, welcomed the debate.

“We trust that this momentum can be harnessed to drive forward our efforts to find solutions to the taxation of the digital economy,” a spokeswoman said, adding that the overall aim is that “profits are taxed where the value is created”.